Fall 2014 Update
It’s amazing that we are facing the end of 2014, and I was shocked to hear that Christmas is about 14 weeks away and away we go with putting away the end of the year.
If you’re considering some end of the year tax planning and/or liquidating some real estate assets; you may want to re-acquaint yourself with the “ends and outs” of doing a 1031 Exchange and make sure you are ahead of the process even before you get started.
A 1031 Exchange may be even more desirable this year than in years gone by because the Capital Gains threshold was raised by both the Feds and the State at the beginning of 2014.
Tax Deferred Exchange Primer
A Quick Guideline to the Art of the 1031 Exchange/2014
by Annette Cooper, Senior Real Estate Advisor, Keegan Coppin/ONCOR International
The New Year is a good time to re-visit the recent developments in the Capital Gains rates that were established in 2013. In essence; as predicted for years, the Federal Capital Gains Rate is “inching up” for high net worth investors from 15% to 20% and the State is adding another 3.8% from its current rate of 9.3%. These dubious factors (income levels, health care insurance costs, and mental health costs) that loom large in the background are positioned to accelerate capital gains ratios upwards to over 35%. This is a big shift from the old standard “rule of thumb” that was approximately 25%, and there is more reason than ever to re-visit the 1031 Exchange Option that is alive and well.
If there’s a silver lining in this cloud of confusion that has absorbed our collective attention; it’s that all of us have been forced to take a good hard look at how we invest and hold our money. Such scrutiny may reveal opportunities that were never before considered, or maybe didn’t exist in the past.
“Will the capital gains tax be raised?” Currently capital gain tax rates are at an historic low, hovering at 15% with the Feds. This may or may not change as the administration takes aim at reducing the record deficit. Still this may be a good time to sell and reposition your equity. Fortunately, the 1031 Tax Deferred Exchange Option remains a reliable and secure vehicle for building wealth. Now is a good time to evaluate the income to appreciation ratio in the property you own and determine how your property’s cash flow is actually performing for you. If you’ve owned your property for an extended period of time, you may discover that your property’s appreciation is eclipsing the cash flow. Now may be time to liquidate that asset and take advantage of the historically low prices that exist in the marketplace. Seek and ye shall find.
Annette Cooper, Top Ten Keegan & Coppin Commercial Real Estate Agents List, is based in Santa Rosa, CA specializes in 1031 Exchanges.